Parliament should focus on high impact sectors in Budget

With the tabling of the financial year 2023-24 budget estimates and the Finance Bill 2023, Kenyans will be waiting with bated breath on how Parliament interrogates the executive on the plan to implement its ambitious targets as espoused in its Bottom-up Economic Transformation Agenda.

Although the economy has exhibited a heightened degree of resilience, there exist several risks such as the ongoing Ukraine-Russia conflict, tightening global financial conditions, high cost of living, high debt servicing obligations, and political and climate-related challenges. Together with the lingering effects of the Covid-19 pandemic, the country is expected to strike a careful balance if it is to meet the expectations of Kenyans regarding socioeconomic advancement.

The latest Africa’s Pulse, the World Bank’s April 2023 update, indicates that economic growth in Sub-Saharan Africa is set to slow from 3.6 per cent in 2022 to 3.1 per cent in 2023. To avert a potential economic crisis, policymakers are being called upon to redouble their efforts to curb inflation, boost domestic resource mobilisation, and enact pro-growth reforms - while continuing to help the poorest households cope with the rising costs of living.

Back home, a sectoral analysis of the Budget Policy Statement FY 2023-2024 reveals a significant misalignment or less prioritisation of critical sectors that have the possibility of creating a high impact on the economy. These sectors are agribusiness, affordable housing and manufacturing, which account for almost half of Kenya’s gross domestic product (GDP).

Kenya’s pathway to transformation also requires addressing the cross-cutting issues that challenge the overall competitiveness of the economy while also tackling sector-specific constraints that exist.

Enhancing the productivity of agriculture would support structural transformation, adding pressure on cities and the need for housing, particularly affordable housing. The need for new building materials and skills in the housing sector could support the manufacturing sector and boost further enterprise and job creation, in addition to the extra local development capacity and labor that will be needed to drive the affordable housing segment.

The agricultural sector which employs more than 40 per cent of the total population and 70 per cent of the rural population has seen a reduction of 12 per cetn in this year’s budget proposals according to an analysis undertaken by the Institute of Public Finance (IPF) and this should have Parliament committees responsible for agriculture concerned.

Given its high growth multiplier effect and inclusive job-creation opportunities, the government ought to have been more strategic in putting in place interventions that will help unlock productivity and increase the regional and global competitiveness of the most promising agribusiness value chains.

Affordable housing has been identified as a key economic accelerator that if well supported, will have a high development impact in terms of economic expansion, skills and employment growth, backward and forward links, and inclusion.

It is quite refreshing to note the efforts of the National Government in achieving the affordable housing dream through the Kenya Mortgage Refinance Company (KMRC) and other financial partners.

The notable budget increase to the State Department for Housing and Urban Development by 25.8 per cent will go a long way in enhancing affordable housing production as well as contributing to positive externalities across the large and increasing small-scale housing construction sector.

The next step is for the government to progressively address issues around the high cost of land, streamlining the tax regime as well as putting in place the necessary regulations that will spur the housing boom.

The final sector that requires increased attention is the manufacturing sector. Although Kenya has the largest manufacturing base in East Africa, regional neighbors are outpacing its growth by wide margins — the sector has been stagnant despite efforts to increase its share of contribution to Kenya’s GDP by at least 10 per cent by 2030.

The latest budget allocation to the State Department of Industrialisation indicates a reduction of 44 per cent in the sector. This has a net effect of derailing the implementation of key programmes including industrial development and investment, standardization, and business incubation and research.

There is also a notable omission of the funding for market linkages for micro, small and medium enterprises (MSMEs) and government preferential treatment for MSMEs. It has to be noted that the implementation of these sub-programmes is essential in helping MSMEs access domestic and international markets after expanding their product portfolio.

One of the quick wins will be to restructure the Financial Inclusion Fund to enable it to respond to the needs of SMEs in the manufacturing sector as well as incentivize manufacturers to invest in employee training to build a skilled and competent workforce.

While the FY 2023-24 Budget, the first one under the Kenya Kwanza government is expected to support inclusive economic growth, the government needs to show its commitment to supporting the vulnerable in society through adequate budgetary allocations to the priority sectors.

Doing this will not only position the country as a competitive economy but also offer equal opportunities for ordinary citizens to thrive.

The writer is the CEO of the Institute of Public Finance

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